The Wall Street Journal published an article today called “First Thing We Do, Let’s Kill All the Law Schools.”  The basic premise is that the costs are outweighing the benefits.  The authors claim that the total cost of going to law school is around $275,000 which leads to higher legal fees to citizens as it constrains supply of lawyers and those who do graduate must charge high hourly rates to repay their student loans.  The solution according to the article?  Kill all the law schools and make it an undergraduate level program. While I agree that the costs of law school have gotten out of hand in comparison to the real opportunities post graduation for many students, this article is wrong on a number of its conclusions.

First, to suggest that there is a supply constrain on lawyers is laughable.  Whether I’m wearing my client hat where I hire lawyers, or my professor hat (I am an adjunct professor at the University of Colorado), there aren’t nearly enough jobs to place all the lawyers this country is graduating.  In fact, the amount of applications to law schools has been INCREASING over the past few years and this is despite the costs going up and the number of jobs going down.  I’m shocked that the authors, one of whom is a professor and another an attorney at a large law firm don’t see these trends.  Perhaps given the rankings of their institutions these realities don’t effect them, but to the rest of us, it’s quite apparent that the system doesn’t suffer from a lack of supply.

Secondly, the idea that one can train good lawyers out of an undergraduate program is misguided.  Clients pay lawyers for judgment, first and foremost.  It isn’t about wrote laws and rules, but rather, whom do you trust to be mature and wise enough to help you with your issues.  I’ve always thought that law schools do a disservice by allowing students to go straight from undergraduate school to law, when they should be copying the business school model of pressuring prospective students to have real-life work experience before attending a graduate program.  As both a client, a professor and former attorney, I believe that on average, those who have some real life experience are better suited to attend law school and become lawyers.  In any event, I can’t imagine wanting to pay for a 21 year old recently-graduated lawyer.  What experience in life do they really have?  Even if a student goes straight though, at least they are 25 years which is a different world than post undergraduate.

The authors talk about paid apprenticeships, but this still doesn’t get around the problem that lawyers would then have no work experience outside of the law.  Simply put, I don’t believe the average graduate has enough maturity to be a lawyer.

The authors also put for thehe concept that we would still have JD programs alongside undergraduate programs.  This makes no sense to me.  At best, we create a two class legal system between the “haves and have nots” and at the end, I don’t see market economics (price) differentiating, rather some folks will get good legal services and others will not.  Passing the bar exam doesn’t mean one is ready to be a lawyer.

Finally, the $275,000 is based on the assumption that actual school costs $150,000 and that with opportunity costs for “bright students with attractive career opportunities” the number, fully loaded is $275,000.  I would have stopped at the $150,000.  yes, that number alone is too high, but the rest is a complete fudge factor guess.  As previously mentioned, many students (maybe most) don’t have a better option than going to law school and thus the opportunity costs are a made up number.

I do applaud their ideas that a legal education should be more well rounded.  At CU, we are actively engaged at trying to bring more diverse subject matter into the classroom.  This is a key for going forward legal education.

In short, I agree with the problem, but the solution doesn’t work here.

As Dean Phil Weiser develops Colorado Law and meets the opportunities and challenges ahead for legal education, he is building his team with a number of positions open.  If you are interested, or know great candidates who are, they can reach out to Phil directly (phil.weiser@colorado.edu) and read more below:

An Academic Entrepreneur to Build New Programs  – Director of Special Projects

Recently, the New York Times published an article called At Well-Paying Law Firms, a Low-Paid Corner. In short, the paper is reporting that some very well known firms are hiring lawyers at cut rate prices (less than half) of what associates on partner track are making at the firm. And these cheaper resources are performing the same services as their partner-track colleagues. This feels like a recipe for disaster to me.

I’ve known a few people who have positions like this at firms. Their names and the firms they work for will remain nameless, however in this post. In each case, the lack of transparency of how this arrangement really bothers me as a client.

First, how do the firms determine which work gets assigned to which group of associates? And does it differ depending on how busy the firm is? If I hire a firm to represent me in a financing, are the folks doing the diligence (which really is the most important part of a financing, not the documentation) sometimes partner-track folks and other times not? Do the clients have a right to decide?

And how are the firms billing out for these lower-cost resources? If they bill the same, it feels like I’m getting ripped off. If they bill less, then my bill will reflect that I’m be represented by the lower-paid people. While I think many junior associates aren’t worth what they are paid (but it catches up later), one does normally get what one pays for. I refuse to believe there is no quality difference in an associate making $160,000+ and one making $60,000.

I worry about mentorship and training, too. What incentive does a firm have to really train folks that aren’t on partner track and might not stick around long term?

Lastly, I would propose the theory that camaraderie is important to the concept of the law firm. Clients hire partners at law firms, but also the firms themselves. This includes the firm culture and the knowledge that client teams traditionally are near each other physically, not in outpost office where some lawyers are making less than have of their other colleagues.

While the reason for this shift was to help with escalating billing rates, I’m still perplexed why lawyers and accountants are the only professions that every year raise their rates. It doesn’t fit with the rest of the economy or their clients. Perhaps instead of creating a group of second-class citizens within the firm, they should pay attention to some of the things I prescribed in my law firm 2.0 series.

One of my absolutely favorite lawyers has started a blog: Reliance on Counsel.  It’s written by Rich Baer, currently the general counsel and chief administrative officer at Qwest Communications.  It’s going to be a must read for anyone wanting to see how one of the most innovative lawyers in the country thinks.  Rich has promised a level of candor and openness not seen today in other offerings.  It’s going to be much more than about law, but leadership, technology and common sense.

Rich is also in the middle of a job search as the merger between Qwest and CenturyTel closes soon.  I predict that he won’t be out of work for long, having recently won and award for Law Department of the Year.

Welcome Rich to the blogosphere!

If you are a reader of this blog, or Brad’s you know that we are keenly interested in the ideal that we should be able to arrive at a model document set for venture financings.

Whereas, I argued that he’d never succeed in coming up with a standard set of seed documents, I used the story of the model form document project from the NVCA.  The project actually produced model forms of documents, but most of us were disappointed by the actual usage.  In my opinion, this was because the documents had too many options and took lawyers a while to deal with them.  (For instance founders reps which you never see on the West Coast and things like that).

But at the same time, these documents live and breathe and are updated by some of the great minds in our business on a regular basis.  I feel safe in saying that are more vibrant and accurate than most law firms. 

Today, I’m delighted to announce that our portfolio company Brightleaf has released their platform including the standard form of NVCA documents.  In short, their document automation and assembly software can save lawyers a ton of time using the NVCA forms, while giving them the piece of mind that they are always using the latest and greatest forms in the business. 

Oh yeah.  Did I mention that it’s FREE?

They are offering free “NVCA ASAP” trial accounts to a limited number of VC’s and Emerging Companies law firm practices. For more information about the project (and how to get a trial account) please visit their NVCA ASAP page here.  For a quick overview demo of how Brightleaf works, watch the video here. 

This could quite possibly be the tipping point in getting us to one standard set of documents.  Maybe Brad won’t fail after all. 

One of my friends and all around good guys, Cal Finch wanted me to get the word out about his company, CPP, hiring a new General Counsel.  Here’s the scoop:

We are seeking a strategic, collaborative, customer-service oriented General Counsel who meets the following qualifications to join our exceptional team and company:

• The General Counsel will possess an LLB or JD degree from an accredited law school and at least 10 years professional experience as a lawyer with extensive experience in international and domestic contract negotiation and drafting, mergers & acquisitions, corporate law, international and domestic corporate compliance, and litigation management required; experience in publishing or media industries and intellectual property law would be ideal
• 5 years experience managing individuals or teams
• Excellent oral and written communication skills
• Ideal candidate will have expertise efficiently and cost-effectively managing outside counsel
• Demonstrated ability to work collaboratively with all employees and other key stakeholders
• Excellent management, leadership and problem solving skills focused on delivering superb customer service
• Demonstrated advanced ability with key business computer applications such as Microsoft Word and Outlook; moderate level of abilities with Excel and PowerPoint

Your responsibilities will include:

Ensuring that organization-wide business strategies, policies and programs are developed and applied in full recognition of all legal implications and risks, including the formulation of internal policies to insure the proper use, enforcement and defense of CPP’s and its licensees’ legal rights, and CPP’s general compliance with applicable law and compliance with contracts. Consult with CPP management and Board of Directors and advise CPP staff as appropriate to assure the overall advancement, maintenance and protection of CPP’s business and legal interests within applicable legal constraints, which includes overall responsibility for the registration and management of CPP’s intellectual property and the prosecution or defense of CPP business interests. Act as the manager of the Legal Division while providing legal services as a practicing counsel and managing relationships and matters with outside counsels. Ensure that the legal affairs of CPP are attended to in an effective and efficient manner and that all legal records are properly compiled and securely maintained for the required time period. Act as Corporate Secretary.

If you would like to make a significant contribution to CPP’s business goals and join a team of cross-functional experts who are passionate about CPP’s products, team collaboration and achievement, and professional excellence, please email your resume to:

Katie Flotten, Director, Human Resources

CPP, Inc.

Mountain View, California

E-Mail: careers@cpp.com

In the interest of time,

your cover letter, resume & salary history MUST be included

for your candidacy to be advanced

As if there wasn’t enough bad mojo for those considering going to law school, now this.  But I had to post.  It’s just so darn funny.

I read a lot of M&A deal term summaries.  While I really appreciate the knowledge gleaned from these reports, they all suffer from the same problems:  They are usually biased toward publically filed transactions and those particular deals serviced by the particular bank or law firm whom is author of the report.

Today, Shareholder Representative Services (SRS) is releasing their 2010 SRS M&A Deal Terms Study, which is a comprehensive analysis of deal terms from a sample of the more than 100 transactions for which SRS serves as the shareholder representative. 

The underlying pool of deals differs in important ways from those analyzed by other similar studies.  The transaction agreements analyzed by SRS generally were not publicly filed and are a good representation of what is happening today in venture-backed M&A.

This study will be the first of a series of information products from SRS designed to leverage their expertise and knowledge to help their customers in their deals.  Future offerings will include data regarding what actually happens, long-term, with escrows and earnouts along with an analysis of claims made against the target company.

You can view the full report here.

Today, my partner Seth wrote a great piece on the merits of early-stage startups raising convertible debt rounds versus traditional preferred stock equity structures.  The piece was inspired by Paul Graham’s recent tweet that said:  “Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”

Seth’s piece is a must read in this debate that is only gaining more participants, including a nice follow up from Mark Suster about his thoughts.  I can’t do justice to either Mark’s or Seth’s pieces trying to summarize them, so I strongly encourage you to read them.

I’m going to go out on a limb and break out my old law bar card and bring up one issue that I don’t think is getting enough focus in the debate:  the use of debt fundamentally changes the fiduciary duties of managers and board member of the company.

If a company raises cash via equity, it has a positive balance sheet.  It is solvent (assets are greater than obligations) and the board and executives have fiduciary duties to the shareholders in the efforts to maximize company value.  The shareholders are all the usual suspects – the employees and venture capitalists.  Life is good and normal. 

However, if a company is insolvent, the board and company now owe fiduciary duties to the creditors of the company.  By definition, if you raise a convertible debt round, your company is insolvent.  You have cash, but your debt obligations are greater than your assets.  Your creditors include your landlord, anyone you owe money to and folks that you might owe money to you, like former disgruntled employees and founders who have lawyers. 

How does this change the paradigm?  To be fair, I have had no personal war stories here, but it’s not hard to construct some weird and scary situations.

Let’s look at the hypothetical:

Assume the company is not a success and fails.  In the case of raising equity, the officers and directors only own a duty to the creditors (landlord, etc.) at such time that cash isn’t large enough to pay their liabilities.  If the company manages it correctly, even on the downside scenario creditors are paid off cleanly.  But sometimes it doesn’t happen this way and there are lawsuits.  When the lawyers get involved, they’ll look to try to establish the time in which the company went insolvent and then try to show that the actions of the board were “bad” during that time.  If the time range is short, it’s hard to make a case against the company.

However, if you raise debt, the insolvency time is forever!  Not just when cash got below the ability to pay liabilities like the equity situation, because the company has never been solvent. 

What does this mean?  It means that if your company ends up failing and you can’t pay your creditors, landlords, etc. that their ability for a plaintiff lawyer to judge your actions has increased dramatically.  And don’t forget, if you have any outstanding employment litigation, etc., all of these folks count as creditors as well.   

The best part of all of this is that many states impose personal liability on directors for screwing up things while a company was insolvent.  Read this to be:  “some states will allow creditors to sue directors personally for not getting all of their money they are owed.” 

Now I don’t want to get too crazy here.  We are talking about early-stage / seed companies and hopefully the situation is clean enough that my doomsday predictions won’t happen, but my bet is that few folks participating in convertible debt rounds are actually thinking about these issues.  And no, I don’t know of any actual cases out there, now.  But I’ve been around this business long enough to know that there is constant “innovation” in the plaintiff’s bar as well. 

Today, I was called for jury duty.  Upon arrival, we sat for 30 minutes, then we watched a 12 minute video for juror orientation. The voiceover kept cracking me up, however, as they were unable to pronounce “voir dire” correctly.  (Think “vor dire” as in Dire Straits).  If you don’t believe me, watch the video.

Anyways,we kept moving rooms, filling out forms, being segregated into different piles of humanity and I thought “couldn’t this be simpler?” and made some snide comment under my breath about the efficiency of government.

While I was sitting there being frustrated, I realized that over complicated things, maybe more than anything, really ruin my day.  Then I realized that I was an arrogant ass, because I’m not sure my ecosystem is all that more simple or efficient most of the time, either. 

I could write tomes on all of the efficiencies that I see every day – the same ones that I’m sure you don’t like either.  I think all this artificial complexity probably plays back into our lives in that we start to overcomplicate things that don’t need the added brain damage.  This includes both professional and personal contexts and the sad thing is that we have so little control on most of these situations.

But we should rethink about how we do things when we do have control. 

Thinking back over my career – and specifically even if I just think deeply about the last few  weeks of meetings that I’ve had -I think the number one piece of advice that I’ve given is “keep it simple.” Whether it’s a business model, financing plan, product user interface, or a plan to deal with human conflict, simple is best the vast majority of the time. 

And likewise, when I think back to those seminal moments of mentorship that I’ve been fortunate to receive, there has usually been a component to simply what I was trying to accomplish.

So, there’s my fortune cookie advice for the day: “keep it simple.”  Likely you and those around you will be happier for it.